An Empirical Analysis of The Effect of Islamic Finance on Indonesia's Economy

Putri Zahirah, Marlinda Marlinda

Abstract


Islamic finance has become an alternative financial solution that can increase financial inclusion, which is often discussed in Indonesia and globally. Therefore, this study aims to analyze the relationship between macroeconomics, Islamic finance, and economic growth in Indonesia, both in the short and long term. Using the VECM method, this study uses monthly time series data related to macroeconomics, Islamic finance, and economic growth from 2012-2023, covering 12 years. In this study, we use the variables of gross fixed capital formation, trade openness, and inflation as macroeconomic proxies, Islamic bank financing, Sharia mutual funds, and Sukuk as Islamic finance proxies, and gross domestic product at constant prices as economic growth proxies. Empirical results show that in the short-term inflation has a significant negative effect on economic growth. Meanwhile, there is a long-term positive significant relationship between Islamic bank financing, Sharia mutual funds, Sukuk, gross fixed capital formation, trade openness, and inflation on economic growth.


Keywords


Macroeconomics; Islamic finance; Indonesian economic growth

References


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